Audrey Strauss, US Attorney for the Southern District of New York, and Peter C. Fitzhugh, Special Agent in Charge of the New York Homeland Security Investigations Field Office (“HSI”), announced that STEFAN HE QIN, the founder of Virgil Sigma Fund LP (“Virgil Sigma”) and VQR Multistrategy Fund LP (“VQR”), a pair of cryptocurrency hedge funds in New York, New York, with more than $ 100 million in investments, has been accused of a charge of securities fraud and pleaded guilty today in federal court in Manhattan. For years, QIN stole money from Virgil Sigma investors, and in December 2020, QIN tried to steal money from VQR investors to pay its investors in Virgil Sigma. QIN pleaded guilty today to US District Judge Valerie Caproni.
US Attorney Audrey Strauss said: “Stefan He Qin drained almost all of the assets in the $ 90 million cryptocurrency fund he owned, stealing investors’ money, spending it on speculative indulgences and personal investments and lying to investors about the fund’s performance and what it did with their money. So, as he admitted today, Qin tried to steal money from another fund he controlled to meet the rescue demands of defrauded investors in the first fund. The entire house of cards has been revealed, and Qin now awaits sentencing for his blatant theft. “
The HSI Special Agent in charge, Peter C. Fitzhugh, said: “Virgil Sigma and VQR, two multi-million dollar cryptocurrency investment funds, have been revealed as cash funds for Qin to live his extravagant lifestyle. Qin orchestrated this reprehensible criminal scheme for many years, making misrepresentations and false promises that persuaded investors to dump millions of dollars into fraudulent cryptocurrency firms, while stealing their investors’ hard-earned money. In addition, Qin mastered the art of trickery by representing these companies as profitable investment strategies, so that more victims fell into their tactics and were defrauded by nearly $ 100 million. The HSI New York El Dorado Task Force, with our incredible law enforcement partnerships, is committed to aggressively pursuing fraud in all forms, regardless of how elaborate and profitable these schemes appear. In today’s technological world, there are more and more opportunities for fraudsters to take advantage of people, and with Qin pleading guilty to his fraudulent acts, HSI and our partners remind those who try to defraud victims in any way, their fraud will be discovered and you will be brought to justice. “
According to the information and statements made at a public hearing:
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STEFAN HE QIN is a 24 year old Australian. Between 2017 and 2020, QIN owned and controlled two cryptocurrency investment funds, Virgil Sigma and VQR, both located in New York, New York. Since its inception, Virgil Sigma intended to employ a strategy to profit from arbitrage opportunities in the cryptocurrency market, specifically, using a trading algorithm to take advantage of the price differences of a number of cryptocurrencies, including Bitcoin and others, in approximately 40 different exchanges around the world, including three exchanges located in the United States. This strategy was presented by QIN to the investing public as “market neutral”, which means that the fund was not exposed to any risk of an increase or decrease in the price of cryptocurrency and, therefore, provided a relatively safe and liquid investment. QIN exercised daily control over Virgil Sigma and was responsible for tracking the fund’s balances on different trading exchanges, designing the algorithms to implement arbitrage trading and preparing investors’ monthly statements. QIN also regularly participated in liaison with investors from Virgil Sigma and other forms of public communication, where he praised Virgil Sigma’s growth and success. Until recently, Virgil Sigma intended to have more than $ 90 million under management by dozens of investors, including many in the United States. According to its public marketing materials, Virgil Sigma has been profitable from August 2016 to the present, with the exception of March 2017.
Around February 2020, QIN founded VQR. VQR employed a variety of trading strategies and was prepared to win or lose money based on fluctuations in the value of the cryptocurrency and was not market neutral. QIN was the sole owner of VQR’s general partner, but was not involved in VQR’s day-to-day operations. Instead, VQR had its own trading team, including a principal trader (the “Principal Trader”) and other investment professionals. Until recently, VQR had at least approximately $ 24 million under investor management.
Qin scheme to steal Virgil Sigma assets
Since 2017, QIN has been involved in a scheme to steal Virgil Sigma’s assets and defraud its investors. Instead of investing the fund’s assets in a cryptocurrency arbitrage trading strategy as announced, QIN diverted the investor’s capital from Virgil Sigma and used the funds for purposes other than the alleged arbitrage trading strategy, including: ( a) use a substantial part of the capital of the stolen investor Virgil Sigma to pay for personal expenses, such as food, services and rent for a penthouse apartment in New York; (b) using a substantial portion of Virgil Sigma’s investor capital to make personal investments, often illiquid, in other entities that had nothing to do with cryptocurrencies (for example, on or about October 2018, QIN invested hundreds thousands of dollars stolen from Virgil Sigma in a real estate investment); and (c) use a substantial portion of the Virgil Sigma investor’s capital to invest in crypto assets that had nothing to do with the fund’s declared arbitrage strategy (for example, in or around 2018, QIN invested funds Virgil Sigma in a given initial currency offers, a speculative way to invest in new cryptocurrency issues). As a result of these and other fraudulent activities, QIN has dissipated almost all of the investor’s capital in Virgil Sigma.
During Virgil Sigma’s asset theft, QIN regularly lied to fund investors about the value, location and status of its investment capital. These lies included a series of public and investor communications, including:
(a) QIN has prepared and released monthly statements to investors who intend to record the value of their holdings in Virgil Sigma. The amounts recorded in these statements did not accurately reflect the results of cryptocurrency trading. Instead, the figures were composed by QIN and did not disclose asset dissipation by QIN.
(b) QIN also periodically prepared marketing materials for the investing public, including summary reports known as “torn sheets” that fraudulently reported that Virgil Sigma was earning remarkable profits, often with double-digit returns in a single month, month after month. For example, on or around February and on or around April 2017, QIN falsely reported that Virgil Sigma earned 48.7% and 35.5% returns, respectively.
(c) On an annual basis, QIN prepared spreadsheets intended to show Virgil Sigma balances on the approximately 40 exchanges where Virgil Sigma allegedly traded in order to prepare tax forms for fund investors, also known as the K-1s schedule. . As QIN was well aware, however, these spreadsheets and the resulting schedule K-1s were false and substantially exaggerated Virgil Sigma balances and trading activity on the exchanges.
As a result of QIN’s lies about Virgil Sigma’s activity and success in these and other communications, QIN was able to continuously attract new capital to Virgil Sigma, thus (a) ensuring that it was able to pay ransom requests of investors, and (b) project the appearance of continuous growth to the public. For example, after QIN and its fund’s supposed success were described in the Wall Street Journal around February 2018, Virgil Sigma experienced substantial growth as new investors migrated to the fund.
Qin tries to steal VQR assets to pay Virgil Sigma investors
In the summer of 2020, QIN was having a hard time meeting requests for bailouts from investors at Virgil Sigma. In order to access funds to make these redemptions, and to hide its fraudulent activities described above, QIN attempted to steal the VQR investor’s capital to pay the ransoms to Virgil Sigma investors. After some Virgil Sigma investors requested redemptions that Virgil Sigma could not afford, QIN convinced investors that, instead of redeeming the funds immediately, investors would agree to have the funds withdrawn from Virgil Sigma and transferred to an investment in VQR. After months passed and no funds were transferred to VQR, QIN falsely told these investors that it had requested the transfer of funds from Virgil Sigma, but that the transfer was postponed because of an intermediary bank. QIN showed some of these electronic transfer requests from investors to reinforce the impression that QIN was in fact trying to transfer funds from Virgil Sigma to VQR. Virgil Sigma’s bank was unable, however, to make these transfers because QIN has dissipated all Virgil Sigma assets.
On or around December 2020, in the face of additional redemption requests that he was unable to handle, QIN demanded that the Chief Trader at the VQR close all trading positions at the VQR and transfer a portion of the funds to QIN so that QIN could use that money to pay off those bailouts for Virgil Sigma investors. QIN issued the demand, although the Chief Trader warned QIN that closing current VQR trading positions, instead of maintaining these positions in accordance with VQR’s directional trading strategy, would result in losses for VQR investors. In the course of these conversations, QIN threatened that if the Chief Trader did not sufficiently streamline this process, QIN, as the sole owner of the general VQR partner, would need to take control of all VQR accounts to access the funds. Following QIN’s instructions, the Chief Trader closed the VQR positions and passed the access to the VQR trading accounts to QIN. QIN subsequently tried to take control of VQR’s assets to allow QIN to meet certain redemption requests from Virgil Sigma investors.
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QIN, 24, pleaded guilty to a charge of securities fraud. This charge carries a maximum sentence of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentence of the defendant will be determined by the judge. The sentence was scheduled for May 20, 2021.
Ms. Strauss praised the work of the Homeland Security Investigations. She further thanked the Securities and Exchange Commission for their cooperation and assistance in this investigation.
This case is being handled by the Office’s Securities and Commodity Fraud Task Force. Assistant US Attorney General Daniel Tracer is responsible for the prosecution.